A Closer Look At Volvo´s Customer Finance Arm......

Underneath the headline ( Volvo swings to loss as deliveries slump ) another trend is emerging..... With a credit reserve under 2 percent ( close to 400 percent increase YOY )it looks like their credit book will be a significant headwind for quarters to come..... This kind of "vendor financing" is widespread and i´m pretty sure we will more of this kind of problems on a regular basis ( see BMW & Harley Davidson )

Hinter der ernüchternden Schlagzeile Lkw-Bauer Volvo im 2. Quartal schlechter als erwartet verbirgt sich ein anderer Trend der bald wohl desöfteren nachzulesen sein wird. Da bei Volvo die Reserven für mögliche Kreditausfälle momentan bei nur 2% ( und das nach fast 400% Anstieg auf Jahressicht ) liegen dürfte deren Kreditbuch die nächsten Quartale sicher nicht zum Ergebnis beitragen......Diese Art der "Absatzfördeung" ist über etliche Branchen weit verbreitet und dürfte zukünftig regelmäßig für wenig erfreuliche Nachrichten sorgen ( siehe BMW & Harley Davidson ).

Volvo

Operating income was negatively affected by SEK 3.2 billion in increased provisions for credit losses and residual value commitments, lay-off related costs and write-downs on inventories as well as costs associated with an agreement with UAW regarding healthcare benefits for retirees

Within the customer-financing operations of Volvo Financial Services, provisions increased for credit losses, primarily in Western Europe, which resulted in a loss for the quarter. This development is to be against the backdrop of our customers having lower freight volumes as a result of the weak economic trend throughout the world. We are working actively with the customers and have an established process for managing customers who have difficulty in paying back their loans.

In Western Europe customers are challenged by the substantial reduction in economic activity leading to an increasing level of delinquency and repossessions.

Continuing to be affected are segments directly associated with the production of motor vehicles, which, despite stimulus programs, remain under pressure. In markets such as Spain the widespread economic slowdown has impacted portfolio performance. In Eastern Europe, there has been little or no improvement since the first quarter as many countries continue to experience a steep decline in economic activity. This means that customers in many segments struggle to meet their obligations and require long term assistance in the form of restructured financing to continue operations.

The operating loss in the second quarter, as a result of higher credit provisions, amounted to SEK 296 M, compared to an operating income of SEK 387 M in the previous year.

VFS has increased the credit provisions primarily in Western Europe during the second quarter of 2009. Total credit provision expenses amounted to SEK 663 M (59) which was higher than the write-off level of SEK 563 M (103).

This resulted in an increase in the credit reserve from 1.72% at March 31, 2009 to 1.88% of the credit portfolio at June 30, 2009.

The annualized write-off ratio through June 30, 2009 was 1.77% (0.37).

At June 30, 2009 total assets amounted to SEK 109.7 billion (99.2). The credit portfolio decreased by 3.6% net over the last twelve months, adjusted for exchange-rate movements.

> Add higher financing cost & this as another kind of vendor financing to the mix and the picture isn´t getting any better..... Needless to say that the stock is up close to 4%....... Probably because the time of negative orders is now over...... ;-)

> Wenn man jetzt noch höhere Finanzierungskosten & diese Form der Absatzförderung hinzunimmt dürften die Riskien für Firmenbilanzen nicht gerade weniger werden...... Überflüssig zu erwähnen das die Aktie mit 4% im Plus notiert...... Liegt wohl daran das endlich die Zeit der negativen Orders vorbei ist......;-)

Number Of The Day " European Volvo Net New Truck Orders Now Negative"

I have a strong feeling that we will see similar order intakes from other parts of the world & and different industries in the not so distant future...... I cannot help but somehow the erosion ( or implosion ) of the backlock from the homebuilders comes to my mind....... I assume we will see a comeback of "vendor financing" ...... I have already heard chatter on this topic in several conference calls from GE, Siemens, Boeing, EADS etc...... Wouldn´t be the first time this "strategy" will be backfiring down the road..... But with very few companies having a strong balance sheet going into this long downturn there is at least some hope this won´t get out of control.... But with the culture to prefer short term gains still not dead .......

Ich bin mir ziemlich sicher das wir ähnliche Orderdaten demnächst auch aus anderen Teilen der Welt und leider auch aus anderen Branchen sehen werden....... Das ganze ruft in mir Erinnerungen an die Implosion der angeblich vollen Auftragsbücher bei den Homebuildern wach....... Ich bin mir ziemlich sicher das wir demnächst ein Comeback der Lieferantefinanzierung sehen werden....... Konkrete Aussagen zu diesemThema gab es bereits von Siemens, GE, Boeing und EADS...... Wäre nicht das erste mal das diese Strategie auf lange Sicht mit hohen Risiken verbunden ist. Da aber kaum ein Unternehmen momentna ne starke Bilanz vorzuweisen hat dürften uns Auswüchse wie in der Vergangenheit ( erinnere an die Telekomzulieferer die nachher auf Mrd. an Forderungen sitzen geblieben sind ) erspart bleiben......

Reuters World number two truckmaker Volvo said on Tuesday deliveries had tumbled 21 percent year-on-year in November and that its order book was shrinking rapidly amid a sharp market contraction.

Volvo, whose brands include Renault, Nissan Diesel and Mack as well as its own name, said deliveries fell 42 percent in its biggest market, Europe, and 22 percent in North America.

Volvo has already suffered the effects of this decline, reporting in late October a 100 percent fall in order bookings after clearing its books of uncertain orders and cancellations ( see Number / Shocker Of The Day "Volvo New Truck Orders"..... ) . .

Volvo said a weak order trend from the third quarter had continued

with the number of cancelled orders in October and November eclipsing new orders by some 1,800 trucks in Europe.

"When we saw zero order intake in the third quarter, it looked like this couldn't get any worse -- but it has," said an analyst who asked not to be identified.

"A negative order intake in Europe, that probably had not been anticipated by the market."

> To end on a positive note..... Volvo is up almost 4 percent on this kind of news ( and 30% from the bottom a few weeks ago ) and all competitors ( Scania, MAN, Daimler ) are also in the green.......

> Nach soviel Doom & Gloom ist es zumindest mehr als bemerkenswert das Volvo fast 4% im Plus notiert ( und nebenbei bemerkt satte 30% vom Tief vor einigen Wochen ) und auch alle relevanten Wettbewerber ( Scania, MAN, Daimler ) im grünen Bereich sind......

Number / Shocker Of The Day "Volvo New Truck Orders".....

Despite the market terror a nice weekend......

Trotz allem ein schönes Wochenende.....


Bloomberg

Volvo said it received 115 order bookings for heavy trucks in Europe in the quarter, down from 41,970 trucks a year earlier. Customers in Europe are taking a ``wait and see'' attitude amid turmoil in global financial markets, Volvo said.

The following table is from the Volvo website. Some readers questioned the data but unfortunately the ordernumber for Europe was no typo. UPDATE :It´s safe to say that cancellations are playing a big part..... There were obvioulsy no cancellations in 2007.....

Die nachfolgende Tablle ist direkt von der Volvo Präsentation Hatte wie einige Leser ebenfalls leichte Bedenken das sich hier evtl. der Fehlerteufel eingeschlichen hat. Ist leider nicht der Fall. Die Orderzahl ist wirklich so schaurig....... UPDATE: Der Löwenanteil des Rückganges liegt in den Stornierungen begründet. Da diese Zahl auf gleicher Basis wie im Jahr 2007 ( mit offensichtlich keinen oder nur wenigen Stornierungen ) berechnet worden ist bleibt sie leider repräsentativ

	Third quarter		Change	First nine months		Change
Number of trucks	2008	2007	in %	2008	2007	in %
Europe	115	41,970	(100)	48,333	133,584	(64)
North America	7,578	7,486	1	19,611	16,187	21
South America	5,096	3,578	42	13,639	12,752	7
Asia	14,607	12,863	13	43,067	37,574	15
Other markets	4,676	5,675	(18)	19,823	17,647	12
Total	32,072	71,572	(55)	144,488	217,744	(34

UPDATE:

The downturn in demand in Europe has been more severe than previously expected. The financial turmoil and credit tightening has led to a very cautious approach among customers when it comes to deciding on investing in new trucks. During the quarter, gross order intake in Europe amounted to approximately 20,000 trucks, consisting of both new customer orders and some changed orders. The explanation to why the net order intake only amounted to 115 trucks is that a review of the order book was carried out in close cooperation with customers. The review resulted in that approximately the same number of orders that were received during the quarter was taken out of the order book

Don´t know what to make of this...... Either they inflated orders in the past or they are trying to say in a very complicated way that they had huge cancellations.....

Keine Ahnung wie genau Volvo das meint..... Entweder die haben in der Vergangenheit die Orderzahl künstlich gen Norden gepusht oder Volvo probiert hier sehr verklausoliert zu berichten das die Stornierungen gigantisch waren......